- The Sovereign Gold Bonds, initially launched in 2015,are government securities denominated in grams of gold. They are substitutes for holding physical gold.
- Sovereign Gold Bonds will be issued on behalf of the Government of India by the RBI. Thus, the Bonds will have a sovereign guarantee.
- Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The redemption price will be based on the prevailing price of gold on maturity.
- The bonds are denominated in multiples of gram(s) of gold with a basic unit of 1 gram.
- The minimum investment in sovereign gold bond scheme is 1 gram of gold and the maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities.
- The bonds are sold through offices or branches of Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL) and the authorised stock exchanges either directly or through their agents.
- The government has fixed the price at ₹ 3,146 per gram for sovereign gold bond scheme. For online applicants if the payment is made through digital mode, there is a discount of Rs 50 per gram on the issue price. For online applications, the issue price will be Rs 3,096 per gram.
- Sovereign gold bonds come with a maturity period of 8 years, with an exit option from the fifth year. Sovereign gold bonds can also be traded on stock exchanges.
- The gold bonds pay interest at the rate of 2.5 % per annum on the amount of initial investment. Interest is credited semi-annually to the bank account of the investor and the last interest payout will be on maturity along with the principal.
- Interest on the Bonds will be taxable as per the provisions of the Income-Tax Act. The capital gains tax arising on redemption of SGB to an individual has been exempted. TDS (tax deducted at source) is also not applicable on the gold bond.
- Sovereign gold bonds can also be used as collateral for loans.
- Bonds acquired by the banks can be counted towards Statutory Liquidity Ratio.
- Joint holding is allowed for gold bonds. Minors can also invest in SGB if guardian applies on their behalf.
- The redemption price shall be fixed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of 999 purity of the previous 3 working days, published by the India Bullion and Jewelers Association Limited.
- The scheme will help in reducing the demand for physical gold by shifting a part of the estimated 300 tons of physical bars and coins purchased every year for Investment into gold bonds.
- Since most of the demand for gold in India is met through imports, this scheme will, ultimately help in maintaining the country’s Current Account Deficit within sustainable limits.
- It will also help the government to raise finances which can be used for developmental purposes.
- The quantity of gold for which the investor pays is protected, since he/she receives the ongoing market price at the time of redemption/ premature redemption.
- A part of the domestic savings, used for the purchase of gold, will be shifted into financial savings.
- The SGB offers a superior alternative to holding gold in physical form by eliminating the risks and costs of storage.
- SGB are exempted from Capital gains tax, if held till maturity.
- SGB is free from issues such as making and polishing charges and purity as in the case of gold in jewellery form.
Issues and Challenges
- The gold bonds are subject to change as per fluctuations in market prices of gold.
- The sentimental value of Indian customers towards physical gold might undermine the scheme.
EVERYTHING YOU WANT TO KNOW ABOUT SOVEREIGN GOLD BOND SCHEME
|1||Issuance||By Reserve Bank India on behalf of the Government of India.|
|2||Eligibility||Restricted for sale to resident entities including individuals, Hindu Undivided Families (HUFs), Trusts, Universities, and Charitable Institutions.|
|3||Denomination||The Bonds will be denominated in the multiples of gram(s) of gold with a basic unit of 1 gram.|
|4||Tenor (time to maturity of a bond)||The tenor of the Bond will be for a period of 8 years with exit option in 5th, 6th year and 7th year.|
|5||Minimum size||The minimum permissible investment will be 1 gram of gold.|
|6||Maximum limit||The maximum limit of subscribed shall be 4 KG for the individual, 4 Kg for HUF and 20 Kg for trusts and similar entities per fiscal|
|7||Sales channel||Bonds will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices and National Stock Exchange of India Limited and Bombay Stock Exchange, either directly or through agents.|
|8||Interest rate||The investors will be compensated at a fixed rate of 2.50 percent per annum payable semi-annually on the nominal value.|
|9||Collateral||Bonds can be used as collateral for loans|
|10||Payment||Payment can be made through demand draft, cheque, and electronic banking.
Cash payment is allowed up to a maximum of Rs 20,000.
The issue price of the Gold Bonds will be Rs 50 per gram less for those who subscribe online and pay through digital mode.
|11||Tax treatment||The interest on Gold Bonds shall be taxable as per the provision of Income Tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted.|
|12||Tradability||Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date, as notified by the RBI.|
(Source: Business Today, Live Mint)